When your credit score is low, it is more difficult to obtain almost any type of credit. This means that it can be difficult to obtain a credit card, an auto loan or even a small, personal loan. It also means that as you search for a lender, you’ll have to be extra careful to avoid predatory lenders and scammers just waiting to take advantage of your situation.
Fortunately, we’ve done the research for you to help you connect with reputable lenders who work with people with less-than-perfect credit scores.
Having bad credit does not mean you are a bad person who is unworthy of credit. It means simply that your credit score is too low to obtain credit on the better terms that lenders offer to people with higher credit scores. When your credit score is lower, some lenders may not be able to work with you. But others will. Lenders don’t judge your character, they look only at the numbers.
There Is a Loan Option for Everyone
Depending on what your needs are, there are options to fit every situation. Some people are short on cash because they have to pay medical bills. Others, may have just lost a job or had their hours reduced.
Depending on your individual credit score, a lender can vary the terms of a loan that helps you get through a financial crisis but exposes the lender to little risk.
Lenders know, that sometimes, life just happens and good people like you just need a helping hand in order to move forward. Additionally, lenders have different definitions of what “bad credit” is. Depending on your individual credit score, a lender can vary the terms of a loan that helps you get through a financial crisis but exposes the lender to little risk. With the right terms, the transaction is a win-win for you and the lender.
Many people who have credit available on their credit cards can get a cash advance from their cards. But, most people don’t have enough credit available – or even have a credit card – if they already have a bad credit rating. Instead of using a credit card for a cash advance, here are some of the other options available out there when your credit score is bad, or low, but you need extra funds when a financial emergency happens:
Home Equity Line of Credit
One of the best options for a loan is to use the equity in your own home. If you don’t need the funds quickly and are willing to take the risk of losing your home if you default, this is a good option. Many lenders want to work with you if you own a home, even if you have a poor or bad credit score.
Since these loans are secured by your home, they offer better interest rates and the payments are generally tax-deductible. If you have about 20 percent equity in your home, you can obtain a home equity loan if you have regular employment and a low amount of other debt.
Ask Someone to Cosign a Loan for You
You may want to consider asking a trusted friend or family member for a personal loan or to cosign with you for a personal loan. If this person has a good credit score, you may be able to get a better interest rate and pay lower loan-origination and other fees on your loan. Keep in mind that if you fail to make your payments, your friend or family member will be obligated to repay the loan instead.
Credit Union Loans
Credit unions offer better terms to their members, especially those with low or bad credit scores. They are not-for-profit entities and usually have more favorable lending terms than a bank has. They offer lower interest rates, lower fees and have more flexibility when making lending decisions in bad credit situations.
These lenders will require you to give them a security interest in personal or real property that you own. Giving the lender a legal right to sell the property makes it easier to obtain a loan when you have bad credit. If you default and don’t make your loan payments on time, you will lose the property you gave to the lender as security for the loan. If a family heirloom is something you really shouldn’t part with, don’t take a chance by using it as security for a loan.
More: Best Secured Loans
These loans help you finance larger purchases like furniture, cars and homes. In most cases, you make regular, equal payments over a set time period. However, home mortgages offer a variety of terms, including adjustable interest rates that will change the monthly payment amount you owe. Installment loan lenders generally require that you have a very high credit score, even though the loan is secured by the product or home you are buying.
Debt Consolidation Loans
Lenders offer debt consolidation loans to help you save money each month if you have multiple debt payments. By combining all your debt into one loan, you can generally pay them off at a lower interest rate at a fixed payment amount. You will be paying off your debt over a longer period of time paying more interest in total but benefitting from the lower payment (and better cash flow) each month. Any extra income you save or earn should go right into paying off the principal balance.
There are a few companies that have pioneered the online systems for person-to-person direct-lending. Through one of these lenders, you can apply online for a loan from individuals rather than from a bank or credit union. Some of the sites do work with borrowers who have bad credit. However, unsecured loan terms may be onerous. So, if you are already having trouble making payments on your current debt, adding another loan payment into your monthly budget may not be something you can handle without causing yourself more financial headaches.
Loans for Bad Credit Exist—but Be Careful
The bottom line is that when you’re looking for a loan, especially if you need one quickly, you need to be careful. Look for lenders who are up-front and clearly list their interest rates and every fee you could potentially have to pay.
The most important thing is to not get stuck in a cycle-of-debt that drags you down even more. Very-high interest rates and abusive lending fees can put you there very quickly. Take a look at companies we trust. Make informed financial decisions that help you resolve your current crisis and let you move forward with peace of mind.